FedEx Corporation (NYSE: FDX) shares are falling this morning after a report released by Fitch Ratings signaled a gloomy outlook for freight transportation in 2008. Demand for railroad and trucking services will continue to decline in 2008, according to the report. The report also cites weakness in housing, potential tightness in the credit markets and high energy prices as macroeconomic factors that could also lead to lower demand and revenues for freight transportation firms. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on FDX.After hitting a one-year high of $121.42 in February, the stock hit a one-year low of $91.10 last month. This morning, FDX opened at $95.40. So far today the stock has hit a low of $95.26 and a high of $96.75. As of 11:25, FDX is trading at $96.13, down $1.84 (-1.9%). The chart for FDX looks bearish but improving slightly, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $120 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade, will make a 4.2% return in 4 months as long as FDX is below $120 at April expiration. FedEx would have to rise by more than 24% before we would start to lose money.
FDX has not been above $120 since February, and shown resistance around $94 recently. This trade could be risky if the holiday season is a strong one, but even if that happens, this position could be protected by resistance the stock might find at its $200 day moving average, which is currently at $108 and falling.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in FDX.